Reviewed against current CRA guidance and the Income Tax Act on 16 October 2026
The short answer
- Renting the whole home usually counts as a sale for tax purposes. On the date it became a rental, you are generally treated as having sold and bought it back at fair market value, unless a valid subsection 45(2) election was made.
- For someone who has emigrated, the election is not automatically better. It defers that deemed sale, but it also spreads the principal residence exemption across years when you were not resident in Canada.
- Any capital cost allowance (CCA) claim ends the election from the start of the year it was claimed.
- The building can raise the holdback to 50%. A buyer’s exposure on depreciable property is 50% of the amount allocated to it, so the sale may need both Form T2062 and Form T2062A. If you cannot show your CCA history, CRA may calculate its payment as though full CCA was claimed.
- Your rental years have their own filings (25% withholding, NR6 and Section 216 returns), and they need to match the sale file.
If you are preparing to sell, request a rental-history and Section 116 review. We will identify the missing records before an unsupported number reaches the buyer’s lawyer or CRA.
When did the home actually become a rental?
Leaving Canada and renting the home are separate events. Canada generally excludes Canadian real property from the deemed sale on emigration (CRA, dispositions of property for emigrants). The home’s tax cost does not reset when you leave.
A complete change in use, from your home to a property used to earn income, generally causes a deemed sale and reacquisition at fair market value under paragraph 45(1)(a). For a nonresident, the income has to be from a source in Canada (paragraph 45(1)(d)), which Canadian rent is. Any gain on that deemed sale may be reduced by the principal residence exemption (CRA folio S1-F3-C2, ¶2.48).
The date is a question of fact. Evidence includes when you moved out, when the home was advertised, the first lease, and any vacant or family-use periods. If you left Canada in one year and rented the home in a later year, those are two different dates, and an appraisal fixed to the wrong one distorts both the conversion-year result and the later sale.
Partial rentals follow different rules. Renting a basement suite created through structural changes can be a partial change in use (¶2.57–2.58). Renting a room with no structural change and no CCA claim usually is not (¶2.59).
Should there have been a subsection 45(2) election?
A valid 45(2) election treats you as not having changed the use of the home. It is made by a signed letter filed with your return for the year of the change (folio ¶2.48). If you were already nonresident when the rental began, a Section 216 rental return is itself a return of income under Part I, and CRA’s folio expressly contemplates nonresidents reporting rent under Section 216 with a 45(2) election in place (¶2.77). You still report the rental income every year.
What the election can do:
- defer the gain you would otherwise have on conversion;
- let the home be designated as your principal residence for up to four rental years (¶2.50).
What it cannot do: make your nonresident years count. Full benefit of those four years requires that you were resident, or deemed resident, in Canada in them (¶2.50). The exemption formula counts only Canadian-resident years (¶2.75).
Why that matters for emigrants. With an election in place, the conversion is ignored, and the exempt share is calculated over your entire ownership, including every year abroad. Without an election, the gain up to the conversion date may be largely or fully covered by the exemption, but the later growth is taxable and you need a supportable value at conversion. Which route produces less tax depends on when the value grew. It is a calculation, not a rule of thumb.
If no letter was filed. CRA can accept a late 45(2) election under subsection 220(3.2) and section 600 of the Regulations. One condition CRA lists is that no CCA has been claimed since the change in use for the period the election is meant to cover (¶2.49; IC07-1R1). Acceptance is discretionary. Review the original and later returns, the CCA schedules and the timing before relying on a late election.
CCA: the claim that ends the election, and the building’s tax cost
CCA is tax depreciation. On a rental home it is claimed on the building, not the land. A landlord can deduct repairs, insurance, mortgage interest, property tax and management fees without claiming CCA. “I claimed rental expenses” does not mean the election failed. “I don’t remember claiming depreciation” is not proof either. Check the filed returns.
CCA matters in three ways:
- It ends the election. A CCA claim while a 45(2) election is in force rescinds it from the first day of that year, which triggers the deemed sale at that date (folio ¶2.48).
- It creates recapture on sale. CCA previously claimed is generally brought back into income in full on sale, rather than being taxed as a capital gain.
- The building’s starting cost is not simply its market value. Without an election, paragraph 13(7)(b) sets the building’s capital cost for CCA at its original cost plus only half of the increase in value up to conversion. The formula adjusts only for a capital gains deduction under section 110.6. It does not adjust for the principal residence exemption.
The building can raise the holdback to 50%
This is the point most often missed on a former home that became a rental.
- Ordinary capital property: without a certificate, the buyer can be liable for 25% of the price (subsection 116(5)).
- Depreciable taxable Canadian property, such as a rental building: subsection 116(5) does not apply. The buyer’s exposure under subsection 116(5.3) is 50% of the amount paid for that property, less any amount fixed in a certificate (IC72-17R6, ¶51).
That is why two forms are often needed. Form T2062 reports the gain on the land and building. Form T2062A reports the recapture (or terminal loss) on the building. CRA says T2062A should be filed for depreciable property even if no CCA was ever claimed, and it issues two certificates (¶15).
How CRA sets the payment (¶43):
- 25% of the gain on the land and building (on T2062); plus
- the federal tax rate applied to the recapture (on T2062A).
If the CCA history cannot be determined, CRA’s stated fallback is to calculate the recapture as if full CCA had been claimed from purchase to sale. It says it uses that only after efforts to agree on the correct amount have been exhausted, and that prior returns should be made available (¶43). Reconstructing the return history early is usually cheaper than accepting that assumption.
Whether the building is depreciable property at the time of sale, and how the price is split between land and building, depends on the rental history and any election in force. Settle that with the lawyer before the holdback is fixed.
Section 216 and NR6: the rental years have to reconcile
While you own a Canadian rental as a nonresident, the tenant or property manager generally must withhold 25% of gross rent under Part XIII and remit it by the 15th of the following month (CRA, rental filing requirements). Without a Section 216 return, CRA generally treats that withholding as your final Canadian tax on the rent.
Section 216 lets you pay tax on net rental income instead, and potentially recover excess withholding:
- With an approved NR6: your Canadian agent may withhold 25% of net rent. CRA asks that the NR6 be sent on or before 1 January of each year, or before the first rental payment is due. As an individual you must then file Form T1159 by 30 June of the following year. CRA will not process a late return under that undertaking and may assess 25% of the gross rent, plus penalties and interest (CRA, NR6 reminder).
- Without an NR6: you can generally file a Section 216 return within two years after the end of the year the rent was paid (subsection 216(1)).
A Section 216 return does not create a 45(2) election, does not decide principal-residence relief, and does not satisfy Section 116 on the sale. A missing T1159 is not automatically non-compliance either: whether an NR6 was filed and whether withholding was correct need to be checked year by year.
From our practice: reconstructing the rental trail
This is the same current engagement described from the principal-residence angle in our companion article. A former Canadian homeowner became a nonresident, rented out the home, and is now selling it. We could not treat the departure date as the rental conversion date, or assume the earlier residence made the sale exempt. The work requires a timeline from earlier returns and the first rental records, a check for any 45(2) election and CCA claim, support for the relevant value, and coordination with legal counsel on the Section 116 holdback.
The file is still in progress. This describes the issues we are reviewing. It does not claim that CRA has accepted an election or issued a certificate. Identifying details have been left out.
The records we gather before calculating a holdback
| Record | Why it matters |
|---|---|
| Purchase, title and transfer documents | Original cost, ownership shares and any intervening transfer |
| Departure-year return and residency evidence | When Canadian residence ended; whether a departure election was made |
| Move-out, advertising, first lease and occupancy history | Whether and when a complete or partial change in use occurred |
| Conversion-year return and any election letter | Whether a 45(2) election exists, a late election is realistic, or a deemed sale was reported |
| Rental returns, NR4 slips, NR6 approvals and T1159 filings | Rent, withholding, Section 216 elections, expenses and CCA |
| Renovation invoices and valuation evidence | Capital improvements versus repairs; value at conversion |
| Sale agreement and the lawyer’s holdback terms | Proposed or actual notice, land/building split, certificate coverage and closing cash flow |
A current listing estimate is not a valuation of an earlier conversion date. Where the conversion value is material, a retrospective appraisal with comparable sales may be worth commissioning. CRA can review values and request an appraisal (IC72-17R6, ¶24–25).
What happens at the sale
The certificate mechanics are the same as for any former home. Form T2062 is the request; CRA issues T2064 for a proposed sale and T2068 for a completed one. CRA asks for at least 30 days’ notice before closing, and if no proposed notice was given, the actual sale must be reported within 10 days. Our companion article on selling a former Canadian home from abroad covers these steps, the principal-residence calculation and the sale-year return in detail. If the property is in Québec, a separate Revenu Québec notice on Form TP-1097-V also applies.
On the sale-year return, the capital gain, any recapture and the Section 116 payments are reconciled. If you are claiming the principal residence exemption for any years, the sale and designation must be reported on Schedule 3 and Form T2091(IND).
Common questions
“I never claimed CCA. Do I still need T2062A?”
Possibly. CRA says T2062A should be filed for depreciable taxable Canadian property even if no CCA was claimed (IC72-17R6, ¶15). Whether the building is depreciable property at the time of sale, and the land/building split, need a file-specific review.
“Can I still make a 45(2) election now that I have a buyer?”
CRA can accept some late elections at its discretion. Prior CCA, the return history and the timing all have to be checked first, and the election is not always the better result for someone who has emigrated. Do not count on it to remove a gain or shrink a holdback.
“My property manager sent NR4 slips. Is my rental tax handled?”
Not necessarily. NR4 slips show rent paid and tax withheld. They do not show that the right amount was withheld, that NR6 undertakings were met, or that Section 216 returns were filed. We compare slips, NR6 approvals, returns and any CCA year by year.
Get one coherent answer before closing
Tell us when you left Canada, when the home was first rented, whether an election letter exists, whether CCA appears on any rental return, and your expected closing date. Lepore can review the history, calculate the Canadian positions, prepare or coordinate the Section 116 applications, and set out what the final return needs. Ask for a Section 116 and rental-history review.
This article is general information on Canadian tax law and CRA guidance as at 16 October 2026. CRA folios and circulars state CRA’s administrative positions, not the law itself. A change in use, rental withholding, elections, capital cost and a nonresident sale must be reviewed against your actual records. Coordinate U.S. reporting with your U.S. adviser where relevant.
Primary sources
- Income Tax Act, section 45, section 13, section 116 and section 216 (Justice Laws)
- CRA, Income Tax Folio S1-F3-C2, Principal Residence, ¶2.48–2.50, 2.57–2.59 and 2.75–2.77
- CRA, Information Circular IC72-17R6, Section 116, ¶6, 15, 24–25, 41–43 and 50–51
- CRA, Information Circular IC07-1R1, Taxpayer Relief Provisions
- CRA, Non-resident rental income: filing and reporting requirements
- CRA, Important reminder about Form NR6
- CRA, Dispositions of property for emigrants
- Revenu Québec, Form TP-1097-V